* Euro gives up early gains to slip 0.2 pct vs dollar
* Stresses in European banking system still spook markets
* Increase in gold shorts outpaces gains in longs – CFTC
(Updates prices)
By Jan Harvey
LONDON, May 28 (Reuters) – Gold pared gains on Monday as the
euro slipped back into negative territory versus the dollar in
U.S. holiday-thinned trade, but the precious metal held above
$1,575 an ounce as investors bet last week’s price drop had been
overdone.
Gold is down more than 5 percent so far in May and is
vulnerable to fresh losses in the euro. Lingering concerns over
sluggish growth in the euro zone and the health of Spanish banks
mean the unit is also on track to fall 5 percent this month.
Spot gold was at $1,575.90 an ounce at 1542 GMT, up
0.2 percent but well off a high of $1,583.50 reached earlier.
The precious metal fell 1.1 percent last week.
Afshin Nabavi, head of trading at MKS Finance in Geneva,
said some buyers had been tempted back by its dip towards
$1,525. “I was among the ones looking for a deeper correction,”
he said. “But $1,525 now looks to be rather solid.”
“It could be a rangebound week, but my guess is that after
the U.S. non-farm payrolls data on Friday, gold may very well
break above $1,600.”
Gold remains firmly tied to the currency markets, climbing
earlier in the day after opinion polls ahead of next month’s
Greek elections showed pro-bailout conservatives in the lead,
lifting the euro on hopes Greece may stay in the euro zone.
The news boosted assets seen as higher risk across the
board, but European shares later pared gains on fears over the
outlook for Spanish banks, while oil prices also came off highs.
The bond markets pointed to ongoing worries over euro zone
debt, with the premium investors require to hold Spanish
government bonds over their German counterparts hitting its
highest since the euro was launched earlier on Monday.
Without the support lent to the market last year by
safe-haven demand linked to the euro zone debt crisis, prices
will struggle to rise significantly in the near term.
“It feels as though there is plenty of scope later this year
for the focus to move from the European fiscal situation to the
U.S. fiscal situation. That has the potential to be supportive
for gold prices,” Natixis analyst Nic Brown said.
“But I would have to say that apart from that, the outlook
doesn’t look particularly good.”
LEAN TIMES FOR INDIAN DEMAND
While gold prices in India tracked the spot price higher,
physical demand for the metal in its biggest global consumer
remained depressed by the weak rupee and seasonal factors.
“We are heading towards a seasonally weak demand period,”
Babu Alapatt, managing director at retailer Alapatt Gold Pvt Ltd
in the southern state of Kerala, said. “The wedding season is
coming to an end and the monsoon is approaching.”
Meanwhile, data from the U.S. Commodity Futures Trading
Commission showed that in the week ended May 22, speculators cut
net bullish bets on U.S. gold to the lowest since Dec. 2008 as
the rise in short positions outpaced the uptick in longs.
Among other precious metals, silver was down 0.4
percent at $28.38 an ounce. Silver has underperformed gold this
month, on track to decline 7.6 percent after falling to its
lowest this year at $26.73.
Holdings of silver-backed exchange-traded funds were at a
one-month high on Friday, Reuters data showed, at 489.3 million
ounces, though they remain around 7 percent below the record
high they hit in April 2011.
Spot platinum was up 0.5 percent at $1,434.24 an
ounce, while palladium was up 2.5 percent at $601.22.
The gold/platinum ratio, which measures the number of
platinum ounces needed to buy an ounce of gold, held at its
highest since early January on Monday.
“Within the precious metals complex, gold continues to
outperform relative to silver and the platinum group metals,”
Deutsche Bank said in a note.
“We expect this trend to continue in an environment where
downside risks to global growth continue to persist.”
(Editing by Alison Birrane)
